Publication database

The increasing demand for bandwidth due to data-intense applications, the convergence of various digital communication technologies as well as the increasing commercial importance of the Internet has given rise to one of the most important questions in the coming years: whether and how the Internet economic model needs to evolve and what role regulation should play in this process. An extensive debate in the US - including contributions by distinguished scholars - has been looking at the pros and cons of net neutrality regulation in the US context. Also in Europe, the European Commission's consultation process in the second half of 2010, which resulted in over 300 responses, shows the vivid interest of policy makers and regulators, industry, and the general public on that matter. However, what is missing is a thorough analysis of the implications of net neutrality regulation on some possible Internet business models adapted to the different market conditions in Europe, foremost European access regulation. In this context, ESMT Competition Analysis analyzes the interaction between different net neutrality regulations and Internet business models. Net neutrality regulation, if and when formally implemented in some shape or form, has the potential to reallocate resources among industry participants, affect optimal pricing strategies, and ultimately impact investment and innovation incentives. Through these effects, the regulatory framework is going to affect which business models will be at all feasible, which are going to thrive, and which will become obsolete. The report derives and analyzes some likely future business models with a view to sustainability in terms of the ability to accommodate increasing traffic volumes and social welfare implications. Based on these assessments, the regulatory implications are discussed for each business model.

The increasing demand for bandwidth due to data-intense applications, the convergence of various digital communication technologies as well as the increasing commercial importance of the Internet has given rise to one of the most important questions in the coming years: whether and how the Internet economic model needs to evolve and what role regulation should play in this process. Net neutrality regulation, if and when formally implemented in some shape or form, has the potential to reallocate resources among industry participants, affect optimal pricing strategies and ultimately impact investment and innovation incentives. Through these effects, the regulatory framework is going to affect which business models will be at all feasible, which are going to thrive, and which will become obsolete. The report derives and analyzes some likely future business models with a view to sustainability in terms of ability to accommodate increasing traffic volumes and social welfare implications. Based on these assessments the regulatory implications are discussed for each business model. The stylized business models each focus on a different aspect: the "Congestion-Based Model" stresses the possibility to tackle congestion problems through congestion-based pricing. The "Best Effort Plus" preserves the traditional best effort network but gives ISPs more leeway with innovative services. The "Quality Classes - Content Pays" stresses the observed need of different applications for various degrees of quality of service. The "Quality Classes - User Pays" model, however, puts the focus on consumer choice for higher quality levels.

The purpose of this report can be summarized as follows: 1. Update our awareness of the issues and challenges facing European firms in terms of technology management. 2. Understand the future of ESMT's sponsors and clients in terms of their R&D and technology organizations. 3. Develop our understanding of the need for skills and capabilities development of the current and future managers and executives in the areas of Research, Development and Engineering (i.e. all those making technology decisions). 4. Seek input for R&D/technology program portfolio that ESMT could offer in the future.

The telecommunication industry is currently in the midst of a disruptive technological development. Next generation (fibre) networks (NGN) increase transmission data speeds from the current 16Mbit/s to more than 100Mbit/s. This enables new services such as HDTV, interactive gaming or video on demand. While the technology exists today, the timing and extent of actual investments depend on the access regulation for non-investors. This paper explores how different regulatory access regimes affect investments and social welfare. We find that the existing access regulation, where the investor bears the investment risk alone, induces too little investments to the detriment of consumers. In contrast, access regimes that distribute the investment risk among more or all telecoms firms stimulate investments and increase consumer surplus. The paper also explores how different forms of risk-sharing, in terms of participating firms and cost allocations, affect social welfare. The (simulation) results presented in this paper build on a game theoretical model.